Articles Posted in U.S. Supreme Court

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The Class Action Fairness Act of 2005, was intended to limit “forum shopping” of class actions lawsuits, or in a court where the law was most favorable to the plaintiff, even if the location was not connected with the underlying facts.  However, the Act did not generally apply to patent infringement cases.  As a result most patent infringement suits (44% in 2015) are filed in the Eastern District of Texas, which has a reputation for juries that award large verdicts.  When a suit is filed there, there is much pressure on a defendant to settle even if the patent owner’s case is weak.

Carmel Indiana’s T.C. Heartland hopes to limit forum shopping.  It was sued for patent infringement by Kraft Foods, and the case is now before the U.S. Supreme Court granted certiorari last month on appeal from the Federal Circuit. The dispute revolves around whether the US Court of Appeals for the Federal Circuit opened the floodgates to forum-shopping in 1990 when it adopted an ultra-liberal interpretation of where a defendant business “resides” – and in the proposed solution, which is to interpret Congress’s 2011 amendments to a general venue statute as having implicitly overruled the 1990 ruling.

The American Intellectual Property Law Association has filed an “amicus” brief arguing that the Federal Circuit correctly interpreted the general venue statute at 28 U.S.C. 1391 as providing a definition of “resides” in the patent venue statute at 28 U.S.C. 1400(b) Although the Supreme Court in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), found the two statutes worked independently, Congress changed the law in 1988 by adding to the general venue statute “for purposes of venue under this chapter.” According to the brief, the deletion of that phrase in 2011 did not return the law to the Fourco rule because it was replaced with the phrase “for all venue purposes.” Nor does the added phrase “except as otherwise provided by law” adopt the Supreme Court’s Fourco rule, the brief concluded.  The AIPLA’s amicus brief is below.

Washington, D.C. – In the matter of Kirtsaeng v. John Wiley & Sons, Inc., the U.S. Supreme Court unanimously held that, among the factors considered in awarding attorneys’ fees under the Copyright Act, courts must give substantial weight to the objective reasonableness of the losing party’s position.

The Court was not persuaded that special consideration should be given to whether the lawsuit resolved important and close legal issues, expressing doubt that fee shifting will encourage parties to litigate such issues. While the Second Circuit test is close to what the Supreme Court prescribes, Justice Kagan wrote, in the Second Circuit, “substantial weight” has become “dispositive weight.” However, the Court also stressed that all circumstances of the case must be considered in light of the goals of the Copyright Act, acknowledging that fees may be warranted despite the objective reasonableness of the losing party’s position.

The decision is consistent with the position advocated in an AIPLA amicus brief filed in this case.

Background

Supap Kirtsaeng, born in Thailand, attended college in the United States. While he was studying in the United States, Kirtsaeng asked his friends and family in Thailand to buy and mail to him copies of foreign edition English language textbooks at Thai book shops, where they are sold at low prices. When publisher John Wiley & Sons (“Wiley”) learned about Kirtsaeng’s sales in the United States at low prices, it sued Kirtsaeng for copyright infringement.

In 2013, the Supreme Court ruled in favor of Kirtsaeng, concluding that Wiley’s sales of the books in Thailand exhausted its copyright interest in the U.S. sales under the first sale doctrine. On remand, Kirtsaeng’s motion for attorneys’ fees was denied. In affirming the decision, the Second Circuit relied on the objective reasonableness of Wiley’s position that the first sale doctrine did not apply to extra-territorial transactions.

Kirtsaeng asked the Supreme Court to review the attorney fee decision.

Competing Factors

Justice Kagan noted that Section 505 of the Copyright Act states that district courts “may” award attorneys’ fees to the prevailing party in copyright litigation, but said that the statute provides no standards for deciding when such awards are appropriate. Guidance for fee awards can be found in the Court’s decision in Fogerty v. Fantasy, Inc, she added, which includes a non-exclusive list of factors that further the goals of the Copyright Act.

In this litigation, each party asserted a factor believed to merit substantial weight: for Kirtsaeng, it is whether the lawsuit resolved an important and close legal issue; for Wiley, it is whether the position unsuccessfully argued by the losing party was objectively reasonable.

The Court concluded that the objective reasonableness of the losing party’s position is more important than the lawsuit’s role in settling a significant and uncertain legal issue. According to Justice Kagan, Wiley’s proposal “both encourages parties with strong legal positions to stand on their rights and deters those with weak ones from proceeding with litigation.” The copyright holder with no reasonable infringement claim has good reason not to sue in the first instance, she explained, and the infringer with no reasonable defense has every reason to give in quickly, before each side’s litigation costs mount.

By contrast, the Court continued, Kirtsaeng’s proposal would not produce any sure benefits. While litigation of close cases can advance the public interest by helping to clearly demarcate the boundaries of copyright law, it is not clear that fee shifting will necessarily, or even usually, encourage parties to litigate those cases to judgment, according to the Court. Justice Kagan explained as follows:

Fee awards are a double-edged sword: They increase the reward for a victory–but also enhance the penalty for a defeat. And the hallmark of hard cases is that no party can be confident if he will win or lose. That means Kirtsaeng’s approach could just as easily discourage as encourage parties to pursue the kinds of suits that “meaningfully clarif[y]” copyright law. … It would (by definition) raise the stakes of such suits; but whether those higher stakes would provide an incentive–or instead a disincentive–to litigate hinges on a party’s attitude toward risk. Is the person risk-preferring or risk-averse–a high-roller or a penny-ante type? Only the former would litigate more in Kirtsaeng’s world. … And Kirtsaeng offers no reason to think that serious gamblers predominate. … So the value of his standard, unlike Wiley’s, is entirely speculative.

What is more, Wiley’s approach is more administrable than Kirtsaeng’s. A district court that has ruled on the merits of a copyright case can easily assess whether the losing party advanced an unreasonable claim or defense. That is closely related to what the court has already done: In deciding any case, a judge cannot help but consider the strength and weakness of each side’s arguments. By contrast, a judge may not know at the conclusion of a suit whether a newly decided issue will have, as Kirtsaeng thinks critical, broad legal significance. The precedent-setting, law-clarifying value of a decision may become apparent only in retrospect–sometimes, not until many years later. And so too a decision’s practical impact (to the extent Kirtsaeng would have courts separately consider that factor). District courts are not accustomed to evaluating in real time either the jurisprudential or the on-the-ground import of their rulings. Exactly how they would do so is uncertain (Kirtsaeng points to no other context in which courts undertake such an analysis), but we fear that the inquiry would implicate our oft-stated concern that an application for attorney’s fees “should not result in a second major litigation.”

Substantial, But Not Dispositive, Factor

All of that said, objective reasonableness can be only an important factor in assessing fee applications–not the controlling one, Justice Kagan cautioned. “Although objective reasonableness carries significant weight, courts must view all the circumstances of a case on their own terms, in light of the Copyright Act’s essential goals,” she wrote.

The Court particularly acknowledged the serious concerns raised over the Second Circuit approach. While it frames the inquiry in a similar way, the Second Circuit language at times suggests that a presumption against a fee award arises from a finding of reasonableness. That perspective goes too far in limiting the district court’s analysis, according to the Court, observing that district courts in the Second Circuit appear to have turned “substantial” weight into something closer to “dispositive” weight. In particular, the Court acknowledged that hardly any of those decisions have granted fees when the losing party raised a reasonable argument (and none have denied fees when the losing party failed to do so).

Without suggesting that a different conclusion be reached, the Court vacated and remanded the case for further consideration in line with this analysis.

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The U.S. Supreme Court agreed to review a patent case on the law of laches (SCA Hygiene Products v. First Quality Baby Products, U.S., No. 15-927) and a case on the copyrightability of cheerleader uniforms (Star Athletica, L.L.C. v. Varsity Brands, Inc., U.S., No. 15-866).

Specifically, the question presented in SCA is:

“Whether and to what extent the defense of laches may bar a claim for patent infringement brought within the Patent Act’s six-year statutory limitations period, 35 U.S.C. § 286.” 

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Washington, D.C. – A unanimous decision by the U.S. Supreme Court this week gave district courts more flexibility to award enhanced damage in cases of willful patent infringement.

This decision consolidated two patent infringement lawsuits, Halo Electronics, Inc. v. Pulse Electronics, Inc., et al. and Stryker Corp. et al. v. Zimmer, Inc., et al, in which Indiana-based Zimmer, Inc. was sued. In each lawsuit, the proper interpretation of the statutory language of 35 U.S.C. §284, which permits district courts the discretion to award enhanced damages in cases of patent infringement, was at issue.

The exercise of that discretion is guided by the principle that enhanced damages are to be limited to cases of egregious misconduct. Prior to this week’s decision, it was also guided by a test elucidated by the Federal Circuit, as set forth in In re Seagate Technology, LLC. This test requires a patent owner to show two things by clear and convincing evidence: first, “that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” and, second, that the risk of infringement “was either known or so obvious that it should have been known to the accused infringer.”

In a unanimous opinion written by Chief Justice John Roberts, the Court held that while the Seagate standard reflected an appropriate recognition that enhanced damages were to be awarded only in egregious cases, the test set forth by the Federal Circuit “is unduly rigid” and “impermissibly encumbers the statutory grant of discretion to district courts.”

The Court primarily took issue with the requirement that objective recklessness be found, holding that such a threshold “excludes from discretionary punishment many of the most culpable offenders, such as the ‘wanton and malicious pirate’ who intentionally infringes another’s patent–with no doubts about its validity or any notion of a defense–for no purpose other than to steal the patentee’s business.”

The Court also noted that the Seagate test improperly allowed ex post facto defenses in considering culpability. Specifically, under the Seagate test, an infringer could rely on a defense at trial, even if he had been unaware of that defense at the time he had acted. This, the Court held, ignored the general rule that culpability is to be determined by an actor’s knowledge at the time of the conduct in question.

Finally, the Court rejected the requirement that recklessness be proved by clear and convincing evidence, finding it to be inconsistent with §284. Instead, it stated that enhanced damages are no different from patent infringement litigation in general, which “has always been governed by a preponderance of the evidence standard.”

The Court vacated the judgments of the Federal Circuit in both cases and remanded them for further proceedings consistent with the Court’s opinion.

Although this was a unanimous opinion, Justice Breyer authored a concurring opinion, in which Justices Alito and Kennedy joined.

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Washington, D.C. – Following a ruling by the Second Circuit Court of Appeals in favor of Google, Inc., the 2005 class-action lawsuit The Authors Guild et al. v. Google, Inc. has headed to the U.S. Supreme Court.

Copyright litigators for Plaintiffs The Authors Guild et al. are asking the high court to hear the lawsuit, which alleges copyright infringement by the publication by Google of Google’s digital book library. Plaintiffs contend that Google, which seeks permission from the owners of the copyrighted works (typically libraries) but not from the authors of the works, has committed massive copyright infringement. Amicus curiae briefs have been filed with the Court by numerous parties. Among them are several notable authors including Malcolm Gladwell, Margaret Atwood, and Steven Sondheim.

Google has defended against the allegations by arguing, inter alia, that its use of the copyrighted material was permissible as a fair use.

Circuit Judge Denny Chin, sitting by designation, issued the opinion for the Southern District of New York. He agreed with Google that its use of the material was properly classified as a fair use, writing:

In my view, Google Books provides significant public benefits. It advances the progress of the arts and sciences, while maintaining respectful consideration for the rights of authors and other creative individuals, and without adversely impacting the rights of copyright holders. It has become an invaluable research tool that permits students, teachers, librarians, and others to more efficiently identify and locate books. It has given scholars the ability, for the first time, to conduct full-text searches of tens of millions of books. It preserves books, in particular out-of-print and old books that have been forgotten in the bowels of libraries, and it gives them new life. It facilitates access to books for print-disabled and remote or underserved populations. It generates new audiences and creates new sources of income for authors and publishers. Indeed, all society benefits.

The Second Circuit affirmed.

The questions presented by Plaintiffs to the Supreme Court are:

1. Whether, in order to be “transformative” under the fair-use exception to copyright, the use of the copyrighted work must produce “new expression, meaning, or message,” as this Court stated in Campbell and as the Third, Sixth, and Eleventh Circuits have held, or whether the verbatim copying of works for a different, non-expressive purpose can be a transformative fair use, as the Second, Fourth, and Ninth Circuits have held.
2. Whether the Second Circuit’s approach to fair use improperly makes “transformative purpose” the decisive factor, replacing the statutory four-factor test, as the Seventh Circuit has charged.
3. Whether the Second Circuit erred in concluding that a commercial business may evade liability for verbatim copying by arguing that the recipients of those copies will use them for lawful and beneficial purposes, a rationale that has been flatly rejected by the Sixth Circuit.

4. Whether a membership association of authors may assert copyright infringement claims on behalf of its members.

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Washington, D.C. – The United States Supreme Court ordered the Federal Rules of Civil Procedure to be amended following last year’s approval of the changes by the Judicial Conference Advisory Committee. Civil Rules 1, 4, 16, 26, 30, 31, 33, 34, 37, 55 and 84, and the Appendix of Forms were affected by this change. The revisions took effect on December 1, 2015.

These changes may affect patent litigation at the trial court level. Most relevantly, Rule 84, “Forms,” was abrogated. That change, in turn, eliminated the Appendix of Forms, including Form 18, which had provided a basic sample complaint outlining what constituted a sufficient allegation of direct patent infringement. Rule 84 had provided that the “forms contained in the Appendix of Forms are sufficient under the rules and are intended to indicate the simplicity and brevity of statement which the rules contemplate.”

Practice Tip: It appears that the abrogation of Rule 84 will modify the pleading standard for patent litigation, raising it to the higher standard set forth by the Supreme Court in Twombly and Iqbal. It is unclear how federal courts will interpret these revisions. Consequently, Indiana patent attorneys, and especially patent litigators, would be wise to keep abreast of rulings on motions to dismiss for failure to state a claim under Rule 12(b)(6) as well as motions for a more definite statement under Rule 12(e) as the contours of the revised pleading standard in the context of patent infringement litigation are clarified.

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Washington, D.C. -The United States Supreme Court has agreed to hear appeals in two separate lawsuits, Halo Electronics, Inc. v. Pulse Electronics, Inc., et al., Case No. 14-1513, and Stryker Corp, et al. v. Zimmer, Inc., et al., Case No. 14-1520, on the issue of willfulness as a prerequisite for awarding enhanced damages in patent infringement litigation. The two cases were consolidated.

Under 35 U.S.C. § 284 of the Patent Act, a district court “may increase … damages up to three times the amount found or assessed.” Despite this language, which on its surface is permissive and discretionary, the Federal Circuit imposes a stricter test. For a district court to award enhanced damages under § 284, this test requires that a patentee prove by clear and convincing evidence that infringement was “willful.” A determination of willfulness requires a finding of both (1) an objectively high likelihood that the infringer’s actions constituted infringement, and (2) that this likelihood was either known or so obvious that it should have been known to the accused infringer.

The questions presented to the Supreme Court are:

1. Has the Federal Circuit improperly abrogated the plain meaning of 35 U.S.C. § 284 by forbidding any award of enhanced damages unless there is a finding of willfulness under a rigid, two-part test, when this Court recently rejected an analogous framework imposed on 35 U.S.C. § 285, the statute providing for attorneys’ fee awards in exceptional cases?

2. Does a district court have discretion under 35 U.S.C. § 284 to award enhanced damages where an infringer intentionally copied a direct competitor’s patented invention, knew the invention was covered by multiple patents, and made no attempt to avoid infringing the patents on that invention?

The Court granted motions by Independent Inventor Groups and Nokia Technologies OY, et al. to file briefs as amici curiae.

Practice Tip: In December 2014, the Federal Circuit overturned the decision of the Western District of Michigan to triple the damages awarded to Stryker, reducing the amount from $228 million to $70 million.

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Washington, D.C. – The U.S. Supreme Court recently decided a patent-royalty lawsuit, Kimble v. Marvel Entertainment, LLC. The Court, divided 6-3, ruled against Kimble.

Stephen Kimble sued Marvel in 1997 for infringing his patent, U. S. Patent No. 5,072,856,

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 with its “Web Blaster,” a toy that allowed users to mimic Spider-Man’s web-slinging superpower. The litigation ended with a settlement wherein Marvel purchased Kimble’s patent for a lump sum and agreed to pay a 3% perpetual royalty on future sales.

The Supreme Court on March 24, 2015, held that a Trademark Trial and Appeal Board (TTAB) decision should be given issue preclusion effect when the usages it adjudicated are materially the same as those before a district court. B&B Hardware, Inc. v. Hargis Industries, Inc., U.S., No. 13-352, 3/24/2015.

Reversing an Eighth Circuit decision, the Court found no categorical reason why issue preclusion can never apply. The same likelihood of confusion standard applies for both registration and infringement, Justice Alito explained, even if the TTAB and the district court do not always consider the same usages. A concurring opinion was filed by Justice Ginsburg, who stressed that preclusion will not apply for a great many TTAB decisions. Justice Thomas (joined by Justice Scalia) dissented, objecting to the presumption of preclusion for adjudicating agencies. The Court’s decision is consistent with the position taken in an AIPLA amicus brief filed in this case.

Background

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Washington, D.C. – The United States Supreme Court held that in those cases in which summary disposition by the court is inappropriate, and where a jury has been empaneled, trademark tacking for purpose of determining priority is a question of fact for the jury to decide.

Hana Financial, Inc. and Hana Bank both provide financial services to individuals in the United States. Hana Bank was established in 1971 under the name Korea Investment Financial Corporation. It adopted the name “Hana Bank” for use in Korea in 1991. It began advertising in the United States as “Hana Overseas Korean Club” in 1994. This name was changed to “Hana World Center” in 2000. In 2002, it began banking under the name “Hana Bank” in the United States.

Hana Financial began using its name in 1995 in the United States. In 2007, it sued Hana Bank for trademark infringement. Hana Bank defended against this claim by invoking the tacking doctrine, under which a trademark user may make limited modifications to its trademark while retaining the priority provided by the initial trademark. The jury held for Hana Bank. On appeal, the Court of Appeals for the Ninth Circuit affirmed, concluding that tacking was a “highly fact-sensitive inquiry” that was properly the province of the jury.

Hana Financial appealed the issue of trademark tacking to the U.S. Supreme Court. In its opinion, the Court noted that lower courts have held that two marks may be tacked when they are considered to be “legal equivalents,” i.e., they “create the same, continuing commercial impression.” That “commercial impression,” in turn, “must be viewed through the eyes of a consumer.” Such an evaluation – designed to capture the impression which a trademark makes upon an ordinary consumer – “falls comfortably within the ken of a jury.”

The Court unanimously affirmed the Ninth Circuit, holding that “when a jury is to be empaneled and when the facts warrant neither summary judgment nor judgment as a matter of law, tacking is a question for the jury.”

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